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Mortgages with low start rates can get buyers into more expensive homes. They can also cause them to lose those homes if they don't understand the risks.

Let Me Pre-Qualify Your Buyers

If you have any potential buyers who have not yet committed to accepting a mortgage, I would like the opportunity to pre-qualify them with my lenders. It is possible that I can either reduce their closing costs or reduce their monthly payment, making it easier for them to afford a larger home. This would put more commissions in their pocket. Or, if they have been quoted a rate based on an Option ARM (see story on the right), I can do an analysis for them to make sure they really can afford to buy the home and make the payments as their payment rises.

Should Your Buyer Pay Points?

One of the questions that comes up often is whether or not a borrower should pay points on a mortgage. Typically, by paying up front points, a borrower can often get a lower interest rate. If a home buyer is only planning on staying in the home for no more than three years, then it may make sense to skip the points and pay a higher interest rate. If they buyer plans on staying in the home for more than three years, it often makes sense to pay points, as the savings from the lower monthly payments will more than offset the up-front points that were paid to get the lower interest rate.

If you have any buyers who are looking at getting a home, I can do an analysis to see if paying points makes sense, or if it just makes sense to skip the points and pay a higher interest rate. Give me a call so I can help your buyer.

You can get Option ARMs loan at most mortgage companies, including Your Company Name. But if you don't understand how to use this mortgage, you should not apply for one. These loans are called "Option ARMs" or "Flex-Pay ARMs". Each month, you can make one of 4 payments. The first is based on the 1.25% teaser rate. The second is an interest-only payment based on the "fully indexed" rate, which is what the true payments are based on. The third is a payment based on a 30-year term using the fully indexed rate, and the last is a payment based on a 15 year term, again using the fully indexed rate.

Although it’s true that the interest rate is only 1.25%, it’s also true that the rate applies only to the mortgage payment, not to the loan itself. Here’s what I mean. At this writing, the 30-year mortgage rate is 6.5%. This is the fully indexed rate. On a $100,000 loan, that is a monthly payment of $542. But these teaser loans let you pretend that the rate is 1.25%. That means your monthly payment is just $333.

That’s one fantastic savings, right? Wrong. You see, the $209 that you “saved” actually gets added to the mortgage balance. Thus, after one month, the mortgage balance is now $100,209. Repeat next month. And the month after that. Soon, the party will be over.

The party, in fact, starts to wind down at month 13. At that point (the start of the second year), the payment will rise by 7.5% (meaning the 1.25% rate is now 1.34%; actual terms vary). Thus, the monthly savings are less than before. But you’re still paying less than the prevailing rate, which means you’re continuing to add to your mortgage balance!

Also, the amount the borrower is adding to the mortgage balance changes monthly. That’s because mortgage rates change monthly. In our example, the mortgage balance grew by the spread (the difference in payments between the 1.25% and 6.5% rates). But if rates rise, the spread grows, and this means the mortgage balance could grow rather quickly if you only choose the minimum payment option and never make any principal payments or at least interest-only payments.

To prevent borrowers from owing half a million dollars on what started out as a $100,000 loan, most of these loan programs limit the mortgage balance to 110% of the original amount. (In our example, the maximum balance would be $110,000.) Although that sounds like a good way to protect borrowers, there’s a nasty implication: Once the loan reaches this cap, the lender will require that the borrower pay enough each month to prevent the loan balance from growing further. That means no more spread. And that means the monthly payment, which perhaps had been based on 1.34%, is now based on 7.5%. The borrower just saw the mortgage payments double or triple in size — overnight.

Still, like all loan programs, it has its place. It might be a good idea for someone who expects their income to increase in the near future, for a self-employed individual who experiences great fluctuations in monthly income, or for very sophisticated borrowers who have a willingness to accept greater risk. It also works for investors who will take that increased cash flow and invest it at a rate that exceeds the fully indexed rate. Thus, as their mortgage balance grows, their investment portfolio grows even faster. However, for most home buyers, these loans will only get them into financial trouble if they can't afford the future payment increases.

About My Services

I would like to help you with the task of providing financing to your clients. To do this, I am able to do the following for you:

• Be available when you have an Open House to help greet buyers
• Help explain the various financing options and mortgage programs your buyers have access to
• Pre-qualify any buyer who has not yet talked with a mortgage company
• Determine the largest mortgage for which your buyers qualify
• Resolve any issues on your clients' credit report that can affect their mortgage.
• Obtain a loan commitment from our lenders
• Provide your buyer with a Good Faith Estimate of closing costs
• Determine any seller assist that a prospective buyer may need and qualify for
• Co-ordinate all aspects of settlement including title search, appraisal, and other services

At Your Company Name, we offer mortgages for most buyers, including ones who are self-employed or who have damaged credit. We have lenders who offer 100% financing meaning no down payment for qualified buyers.

We also offer mortgages with start rates as low as 1%, making it easier to get a buyer into a home.

If you have any questions about how I can help you get financing for your clients' homes, please call me at Company Phone #.